HM Revenue & Customs (‘HMRC’) recently announced the launch of the Profit Diversion Compliance Facility (‘PDCF’), a new disclosure facility for HMRC. This disclosure facility is aimed at helping multinationals disclose any Diverted Profits Tax (‘DPT’) or Transfer Pricing (‘TP’) liabilities which may have arisen as a result of cross-border arrangements.
These cross border arrangements may lead to an artificial reduction in UK profits, and result in less UK Corporate Tax being payable to HMRC.
An example of this would be where a UK company is making rental payments for the use of an asset, through a group structure, and these rental payments end up in a low tax jurisdiction. Depending on the circumstances of the situation and arrangements, this may be caught by the DPT and HMRC may look to bring these payments into the UK tax charge.
Any multinational with undisclosed liabilities from DPT or TP is encouraged to register for the PDCF with HMRC. Once registered, there will be a requirement to make a Report and Proposal containing a full and accurate disclosure of any undisclosed Corporation Tax liabilities or DPT liabilities along with the necessary payment. HMRC have stated that the report, proposal and payment of tax can be made on a ‘without prejudice’ basis.
As part of the new facility, HMRC will also be sending warning letters to companies they deem as ‘high risk’ for investigation inviting them to join the disclosure facility. However companies should not wait to receive a letter before reviewing their DTP and TP obligations as HMRC are making no commitments that they will send letters to all companies they have identified as high risk.
As HMRC believe there are hundreds of ‘high risk’ companies, the DPCF provides a great facility for voluntary disclosure of any potential liabilities to HMRC with the potential reduction in penalties. It is believed if a company receives a warning letter and does not respond, HMRC may in start a fraud investigation. Furthermore, they may ‘name and shame’ businesses deemed to have deliberately diverted profits out of the UK.
Therefore, it is essential to review the position and take appropriate action if you suspect your business may be caught by the DPT or TP rules or if a warning letter is received from HMRC.
For more information please contact Ruth MacNamee (firstname.lastname@example.org) or your usual AAB contact.
To find out more about Ruth and the International Tax team, click here.